Michigan

Chrysler IPO filing: A warning to the UAW trust fund?

Chrysler Group LLC's Jefferson North Assembly Plant's celebrates its 5 millionth vehicle produced, the 2014 Jeep Grand Cherokee Overland in one of its two Detroit plants Monday, Aug. 13. The first vehicle the plant produced was the 1993 Jeep Grand Cherokee. (Tanya Moutzalias | MLive.com)

DETROIT, MI - A company going public is usually a cause for celebration, but not always.

In the case of Chrysler Group LLC, it’s possibly the latter -- at least according to a registration statement the Auburn Hills-based automaker filed Monday with the U.S. Securities and Exchange Commission.

In the filing, which at points reads like a less than subtle warning to the UAW Retiree Medical Benefits Trust, officials say taking the company public could threaten Chrysler's future and alliance with its majority owner Fiat SpA.

“If Fiat becomes unwilling to work with us beyond the scope of its existing contractual obligations, there may be a material adverse effect on our business prospects, financial condition and results of operations,” reads the filing.

The above statement is only written once in the nearly 400-page document, but others are not only in bold lettering, but repeated throughout the document. For example, “We depend on the Fiat-Chrysler Alliance to provide new vehicle platforms and powertrain technologies, additional scale, global distribution and management resources that are critical to our viability and success” is written word-for-word eight different times.

While it's custom to list risks in IPO documents, Chrysler throughout the document stresses the potential risk of a Fiat-Chrysler breakup if the company goes public..

Chrysler Group LLC Chairman and CEO during the announcement inside the former Dime Building, now renamed Chrysler House, April 30.Michael Wayland | MLive.com, file

The Italian automaker, which gained majority control of Chrysler as part of the 2008-2009 automotive bailout, and its leader Sergio Marchionne – also CEO and chairman of Chrysler -- have opposed an IPO because they want to combine the automakers. However, the UAW Retiree Medical Benefits Trust, also known as VEBA, owns 41.5 percent of Chrysler and used its stake to force the SEC filing.

Last year, Fiat sued the trust, saying a 3.3 percent stake it wanted to buy was worth $139.7 million, according to the Associated Press. The trust contended the shares were worth $200 million more than that. In July, a judge refused to set a price and said the issue would have to go to trial, a process that could take several more years.

“Interestingly, Chrysler’s IPO is being motivated by the need of the UAW health care trust to cash in on the company’s gains over the past several years to shore up their own cash reserves," said Alec Gutierrez, senior analyst at Kelley Blue Book. "This goes against Fiat’s desire for a 100 percent ownership stake in Chrysler, and in the end, may only serve as a negotiating tactic.

If approved, the common shares to be sold in this offering are proposed to be sold by the retiree trust, which was formed in 2007 by the UAW and Detroit Three to cut growing health care costs off the companies' books. The VEBA Trust will receive all of the net proceeds from this offering.

2014 Fiat 500L and 2014 Fiat 500L Trekking (Courtesy image)Chrysler

The number of shares to be offered and the price range for the offering have not yet been determined, according to Chrysler.

If the SEC approves and the sale of shares takes place, it would be the first time since 1998 that all three Detroit automakers are publicly traded. Chrysler was last publicly traded before merging 15 years ago with Daimler AG.

Some analysts first praised Chrysler’s filing as a sign of the automakers success since emerging from bankruptcy. But others weren’t some optimistic after reading the filing.

"The Chrysler IPO is a textbook example of the difficulties that can occur when debt is converted into an ownership stake, as it was during Chrysler’s bankruptcy, especially when that the ownership stake is held by an 'interested party,' in this case the United Auto Workers’ healthcare trust," said Jack Nerad, executive editorial director and market analyst.

Nerad said the IPO could be a "stumbling block" in Chrysler’s future success within the Fiat family, and current Chrysler workers might be better served if a merger took place.

Since Fiat and Marchionne took control of Chrysler in 2009, the company has ushered in a new era of products, sales and profitability -- from eight-straight quarterly profits and 41-consecutive months of year-over-year monthly sales gains to 25 new or significantly refreshed vehicles, upping its U.S. market share to 11.2 percent for 2012 from 8.8 percent for 2009.

Chrysler unveils 2013 Dodge DartThe Dart, originally a 1960s compact car that the company produced for nearly two decades, will be available with a choice of three four-cylinder engines, some of them branded Tigershark. Two engines will use Fiat's MultiAir variable valve technology for better fuel economy.

In the SEC filing, Chrysler’s success over the past four years was heavily attributed to its alliance with Fiat, adding the companies have substantial joint procurement savings opportunities by capitalizing on approximately $96 billion in combined annual purchasing power in 2012.

Fiat, according to the filing, is evaluating the “various potential impacts that a public offering and the consequential introduction of public stockholders may have on its views of the Fiat-Chrysler alliance, and as such, is considering whether or not to continue expanding the Fiat-Chrysler alliance beyond its existing contractual commitments.”

Officials said if the IPO does occur and Fiat decides to sell its shares, it could lead to a “presently unknown third party” acquiring control of Chrysler.

As of last week, the U.S. government continued to own about 7.3 percent, or 101 million shares of GM as part of the auto bailout that began under President George W. Bush in 2008, and which was expanded by President Barack Obama in 2009. The U.S. Treasury owned nearly 61 percent of GM as part of the auto bailout.

GM offered an IPO in November 2010 at $33 a share. At the time, it was the biggest IPO in U.S. history, raising $20.1 billion.